Delta Pilots to Discuss Wage Cut Plan

Published 8:00 pm, Thursday, June 12, 2003

AP Business Writer

Delta Air Lines' pilots agreed to discuss a wage cut proposal, a move analysts say is the first step on a long road to returning the struggling carrier to profitability.

The decision was made after the Air Line Pilots Association wrapped up three days of meetings Thursday night. A union memo released Friday did not say what its strategy would be during negotiations or what its position was on the requested concessions. A spokesman did not return repeated phone calls seeking comment.

"A lot still has to be done," said Raymond Neidl, an analyst with Blaylock & Partners in New York. "The change is going to happen. The change is necessary. It's a question of how soon they can implement it."

In April, Delta said it wanted to cut pilots' hourly wages by 22 percent, cancel pay raises due over the next year and reduce some benefits. Delta also wants to rescind a 4.5 percent raise its pilots received May 1 and a similar raise due next May.

A union finance committee has said it doesn't support the company's proposal. Delta's pilots are some of the highest paid in the industry _ some veterans make as much as $250,000 a year, analysts say.

The committee's stated position and speculation about the union's desire to get something in return for concessions _ from better pension benefits to promises of no large bonuses for executives _ could spell trouble for a quick resolution to negotiations, analysts say.

"Hopefully it won't be contentious," Neidl said. "But, history in the industry kind of indicates it may turn out to be that way."

In April, American Airlines won $1.8 billion in annual labor concessions from its employees after saying it would have to file for bankruptcy without them. It hasn't come to that yet at Delta, but analysts say it may if the airline doesn't bring its cost structure down.

James Owers, a Georgia State University professor who specializes in corporate restructuring, said the wage cuts are important for Delta if it wants to avoid the fate of rivals US Airways and United, which both filed for bankruptcy.

"It's crucial because they now have competitors on almost all of their routes domestically with dramatically lower cost structures," Owers said. "Without concessions, Delta has a future that would be distressingly similar to US Airways and United."

Delta, which lost $1.3 billion last year and $466 million in the first quarter this year, has said it needs to cut costs to survive and has targeted pilot wages as part of that effort.

Atlanta-based Delta, the nation's third-largest airline, has reduced its work force by 16,000 since the Sept. 11 terrorist attacks. It also has furloughed hundreds of pilots.

On Friday, the union said it would file a grievance next week protesting the continued furlough, particularly those attributed to the Iraq war. The grievance will assert that the continued furlough of these pilots is no longer justified by the effects of the war and other factors.

Shares of Delta fell 45 cents, or 2.9 percent, to close at $15.15 in trading Friday on the New York Stock Exchange.